Most franchise categories sell you a way to open a business. Hotel franchising mostly sells you a way to fill one you already own. The building and the debt behind it usually exist before the brand arrives, the staff is yours, and the flag on the sign is a license to use a name, a reservation system, and a loyalty program that puts heads in beds you would otherwise have to chase yourself. That difference moves the risk to an unusual place. In most categories the franchisor's demands land hardest at the beginning and then settle into a royalty. In lodging they keep landing, on a schedule, in the form of capital you have to raise again and again for as long as you hold the license.
What the flag delivers, and what it charges for
Buyers new to the category tend to think of the brand cost as one number. It is normally three. There is a royalty calculated on rooms revenue; there is a marketing and reservation assessment that funds the brand's advertising and its booking channel; and there is a charge tied to the loyalty program, which reimburses the brand when a guest redeems points at your property or earns them there. Each is billed off the top line. None of them wait for the hotel to be profitable, and none of them shrink in a soft year unless occupancy shrinks with them.
The direction of travel is worth knowing before you model anything. CBRE Hotels Research compared the same set of U.S. hotels across 2023 and 2024 and found that while those properties averaged a rooms revenue gain of 2.7 percent, their total franchise-related fees rose 3.5 percent over the same stretch (CBRE, The Cost of Franchising, August 2025). A gap that size in a single year is not a crisis. What it tells you is that the brand cost is not a fixed percentage you can set and forget: the components move independently, the loyalty charge in particular, and they can move faster than the revenue they are calculated on.
The renovation is scheduled even when the date is not
The mechanism that defines this category is the property improvement plan, universally shortened to PIP. The brand inspects the hotel, issues a written scope of required work across guest rooms, corridors, public areas, exterior and building systems, and sets a deadline. The scope is not a suggestion and it is not negotiated line by line at the end; it is an obligation created by the license you signed, and the money is yours. A PIP is normally triggered by one of three events: taking the flag in the first place, a change of ownership, or the arrival of the brand's own refresh cycle partway through the term.
Scale is what surprises people. Writing in LODGING, the American Hotel & Lodging Association's magazine, Chris Guimbellot noted in March 2023 that hoteliers had historically expected to spend something in the range of 7.5 to 8 percent of revenue on a PIP issued roughly every ten years, and that the cycle had tightened to seven years or less while product costs climbed sharply (LODGING, PIPs in Perspective). The article cites a 50-room Montana property facing a 500,000-dollar plan, which works out to roughly 10,000 dollars a room. Run that against a small hotel's annual cash flow and the point makes itself. This is not a maintenance budget. It is a periodic capital event on someone else's calendar.
Where the remodel obligation is written down
None of this is hidden. Lodging brands are franchisors and file disclosure documents like any other, and the Federal Trade Commission's Franchise Rule tells them where the answer belongs. Item 9 is a table of the franchisee's obligations that cross-references the agreement clause behind each one, and row (m) of that table is maintenance, appearance, and remodeling requirements (16 CFR § 436.5). That row is the shortest path from the brochure to the clause that will cost you the most money. Follow it into the agreement and read the actual language: who decides the scope, what notice you get, how long you have, and what happens if you do not finish on time.
Three other places matter alongside it. Item 7 estimates the initial investment, and on a conversion deal the entry PIP should be visible there or in its footnotes; if it is not, ask why. Item 11 covers required systems and any obligation to upgrade them during the term, along with whether the agreement caps how often or how expensively that can happen. Item 17 sets out the conditions attached to renewal, which in this category routinely include bringing the property to current standards as the price of another term. Read those four together and you have the real shape of the deal, which is a license that is renewed with capital rather than with a signature.
Two questions occupancy will not answer
Owners in this category tend to watch occupancy and average rate, because those are the numbers the industry talks about and the numbers a brand's reporting hands you every morning. They describe the top of the business. They do not describe the two things that decide whether the flag was worth taking. The first is what share of your rooms revenue the brand consumes once all three fee components are added together, which you can only calculate from actual statements rather than from the royalty figure alone. The second is whether the property is setting aside enough, consistently, to meet the next PIP without new borrowing. Lenders and management agreements often require a reserve for exactly this reason, and an owner who treats that reserve as optional in good years is quietly financing the next renovation at whatever rate is available in the year it comes due.
It is also worth being honest about what the alternative looks like, because the comparison is not brand versus nothing. Independent operators buy distribution too, largely through online travel agencies whose commissions are their own recurring cost. The relevant question is not whether affiliation costs money. It is whether this brand, in this market, at this fee stack, delivers enough incremental occupancy and rate to cover its charges and its renovation cycle with something left over.
Questions to settle before you take a flag
Ask the brand for the current PIP standards and the typical scope for a property of your age and type, in writing, and ask when the brand's design cycle last changed. Ask existing franchisees in the same brand and chain scale what their last plan cost per room, how much notice they received, and whether the brand approved any phasing. Ask your lender directly how a plan of that size would be financed and what it does to your covenants, because the answer determines whether a mid-term PIP is an inconvenience or an emergency. Then price the fee stack from real statements rather than from the royalty percentage, and stress-test a year in which occupancy falls and a renovation deadline arrives anyway.
Finally, take the agreement and the disclosure document to people who read them for a living before you commit to anything. A franchise attorney can tell you what the remodeling clause actually permits the brand to require and what recourse, if any, you have; an accountant who works with hotels can tell you what a reserve of the right size does to your distributions. Lodging is a durable business and a well-placed hotel under a strong flag can be an excellent one to own. The buyers who struggle are rarely the ones who misjudged demand. They are the ones who budgeted for a royalty and were handed a renovation.